Please see below, an update from EPIC Investment Partners following the European Central Bank’s recent policy decision to hold interest rates at 4%. Received this morning – 12/04/2024
Yesterday, as the vast majority of the market had expected, the European Central Bank (ECB) held interest rates at 4% for the fifth consecutive meeting. However, in a more dovish tone, the central bank indicated that as inflation cools, rate cuts could come as soon as June. In the accompanying statement, the council, for the first time, said that while the ECB would remain data dependent, cuts are dependent on economic projections, confirming that inflation is steadily returning to the 2% target.
While the ECB clarified that its decisions are not “pre-committing to a particular rate path,” President Christine Lagarde also highlighted the likelihood of revising rates in the upcoming months. “In April we will get more information and data,” she said. Adding that “a few” members of the Governing Council are already confident about the inflation trajectory. “But in June, we know that we will get a lot more data and a lot more information” she continued.
She went on to say that: “Inflation is expected to fluctuate around current levels in the coming months and to then decline to our target next year. We’re not going to wait until everything goes back to 2% to make the decisions that will be necessary in order to make sure that inflation returns to 2% sustainably at target in a timely manner.”
Lagarde was also at pains to emphasis that the ECB’s rate decisions are independent of the Fed policies, despite the significant economic interactions between Europe and the United States. “The United States is a very large market, a very sizable economy, and a major financial centre, all of which naturally impact our deliberations” Lagarde said. She went on to say that while “multiple channels through which influence can be exercised” the ECB was “not Fed-dependent”.
Ahead of yesterday’s announcement, markets had already been predicting that the first EU rate cut could come in June, at around 75%. At the time of writing that is now priced at 90%.
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Alex Kitteringham
12th April 2024